Contractors usually protect themselves from liability to third parties by purchasing general liability insurance policies. General liability insurance policies protect the contractors from damages for accidental bodily injury or for property damage. Most general liability insurance policies contain exclusions for damages as a result of the contractors' own work or products.

General liability insurance policies provide that an insurance company will pay damages for bodily injuries or property damages that arise as a result of an occurrence. An "occurrence" is most often defined as an accident. Some courts have held that poor or shoddy workmanship is an "occurrence." However, most courts refuse to hold that poor or shoddy workmanship is an "occurrence." "Property damage" means physical injury to or destruction of tangible personal property. Some policies cover the loss of use of the tangible personal property.

Most general liability insurance policies exclude business risks. "Business risks" are risks that are a normal and foreseeable incident of doing business and that can be controlled by a contractor. Faulty workmanship that causes damages to a contractor's work or products is generally considered by the courts to be a business risk that is excluded from general liability insurance policies.

Most general liability insurance policies do not cover breach of contract claims. They only include tort actions that arise from an accident or an occurrence.

When a contractor is being sued for a construction defect in his or her work or product, the contractor often seeks coverage under his or her general liability insurance policy. However, because most courts find that a construction defect as a result of faulty workmanship does not constitute an accident or an occurrence, the contractor is often left without insurance coverage in construction defect litigation. The contractor can only seek coverage under his or her general liability insurance policy if his or her faulty work causes physical injury to property that is not the work of the contractor.

Another issue in construction defect claims is the "triggering" of coverage under a general liability insurance policy. "Triggering" is the event that gives rise to a claim. Because construction defect claims often involve allegations of property damage over an extended period of time, most courts have held that the occurrence of bodily injury or property damage during the policy "triggers" coverage under the policy. More than one insurance policy may therefore be involved. The extended loss may be allocated between more than one insurance policy and may include coverage for damages that occurred outside the period of the policy.

Because a contractor may not be covered by his or her general liability insurance policy for construction defects, the contractor should ascertain whether he or she is properly insured for such defects.

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